The Dollar is Going Up Part II

Meanwhile, the spread between the interest rate and the dividend yield or earnings yield makes an attractive arbitrage. If you are the CFO of a public company and your shares pay a 4% dividend and you can borrow at 2%, it is practically a “no brainer”. The problem is that incurring debt for no productive [...]

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9 replies
  1. mannfm11 says:

    Keith, I believe I read Mises stated that inflation will generally stop as soon as they quit producing more money.

    I like the form of this article, as it covers the subject the way I understand it as well. The balance sheet does have to stand. I suspect the only time the Fed balance sheet would be called into question is if they had to defend the dollar. The banking system has a demand for dollars that could exceed their supply, so it is unlikely the banks are going to demand their interest producing assets back on more than a limited scale. As was mentioned, the treasury bond is the basis for all lending and to my knowledge, most of the credit around the world. Talk of other countries selling the US bonds are exaggerated, in that these instruments allow for access to the international financial markets. If China has a trillion or more in US debt, it would probably shoot its own toes off in destroying them.

    Lastly, there is something amiss in this world afloat in liquidity. The gold/silver ratio has climbed above 60. Somewhere there is a sizable credit crunch happening. While the gold market is too massive to corner, supposedly the silver market could easily be cornered and thus would be more immune than thought by many to the shorts. You can’t deliver what isn’t there. The longs in a derivatives market could merely take delivery, as their losses are already set in stone, if the price has declined. Thus the truth has been the longs have been as naked as the shorts or that trade would have collapsed by now. The only legitimate idea here is there is a credit crunch somewhere coming on the scene.

  2. Keith Weiner says:

    mannfm: Thanks for your comments. I agree on the points you raise, especially the growing liquidity (solvency?) issue. Though I do believe that there is a *LOT* more silver out there than people generally assume. Bunker and Herbert Hunt thought they knew how much there was, but as they drove up the price, more and more silver came to market. They drowned in the deluge. I agree that the longs are most naked, and have been using that term in my articles about the manipulation conspiracy theories for a while. The naked longs must roll their contracts if they wish to remain long, or else close their positions. Either way, as a contract approaches First Notice day, they must sell. We see that selling as a falling basis. If the shorts were naked, they would be forced to buy, which would appear as a falling cobasis. In fact, the basis falls heading into expiry and the cobasis rises.

    • mossmoon says:

      “Though I do believe that there is a *LOT* more silver out there than people generally assume.”

      Keith, I thought the price of a monetary metal ignored conventional supply and demand analysis, and is correlated to stock-to-flow ratios, not quantity. The more silver stock the more stable it should be as as money.

      But if you want to go quantity the Hunt fiasco was over 30 years ago when unlike today there were billions of ounces sitting in government-sponsored stockpiles. How is the depletion of government stockpiles consistent with all of this deliverable silver waiting to come to market?

      I think that because of industrial consumption we are witnessing a situation in silver that has no historical precedent.

  3. petter_w says:

    Thx for posting this.
    The deflationist camp – such as Bob Prechter – tells everyone to hoard dollar bills at home as dollar bills are the legal means of payment which will survice a deflationary bust. Fekete gives or at least gave the same advice a few years back.
    Do you share this view that there is a difference between electronic money and paper money in a deflationary bust? If the bondmarket collapses in a deflationary crash – would physical bills then retain their value?
    What would that scenario be where physical dollar bills can function as money? A banking collapse where plastic, i.e. cards, ceases to work?
    I guess the scenario where physical dollar bills go to nill is the crack up boom.

  4. Nico says:

    It look like a contraction of credit from +/- aug 2011(+/- 16g of gold to buy the dollar) to today(+/- 22g )
    Gold seems the victem of its liquidity.
    How long can a ponzi scheme shrink without problems?

  5. monetary says:

    It looks like gold supply is getting short — go over to and search “Gold bar premiums in Asia hit record highs on China demand.” Premiums on physical gold are double what they usually are in some places. Kilo bars are not available at any price for immediate delivery.

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